(Reuters) - Whole Foods Market Inc (WFM.O) shares rose on Monday for the second straight trading session after Amazon.com Inc (AMZN.O) announced plans to buy the upscale grocer, with investors appearing to bet that rivals could step in to create a bidding war.
Despite that possibility, Amazon shares also gained as Wall Street analysts lauded the proposed $42-per-share deal and bet that the company would prevail in any bidding battle.
After closing at $42.68 on Friday, Whole Foods shares were up 1.5 percent at $43.32 on Monday morning after rising as high as $43.64 earlier in the session, suggesting hopes it would end up fetching a higher price. Amazon hit a high of $1,017 and was last up 1.4 percent at $1,001.13.
Barclays analyst Karen Short raised her Whole Foods price target to $48 from $38 and upgraded the stock to overweight from equal-weight, citing the possibility of counterbids.
"Many will do anything to either make this acquisition more costly for Amazon, or prevent the asset from landing in Amazon's lap," Short wrote in a note to clients.
A $48-a-share price tag would be more than reasonable for a fellow retailer that could eliminate overhead at Whole Foods, Short said, while adding that very few companies could outbid Amazon.
Benchmark Research analyst Daniel Kurnos also expects a bidding war, but he said: "Amazon will ultimately be able to outbid any other party by a meaningful amount, given the valuation gap between them and WFM."
Wedbush analyst Michael Pachter said the deal was a "healthy option to accelerate growth" at Amazon as it could use Whole Foods supermarkets as distribution centres for its online grocery service and to sell its own branded devices, such as Kindle e-readers.
Pachter said Amazon was likely to increase spending to build its online grocery business over the next several years, so the acquisition would add only slightly to earnings while boosting revenue significantly.
Reporting by Sinead Carew; Editing by Lisa Von Ahn